Monday, May 22, 2017

Long-term care can
be very expensive. Can you deduct the costs on your income tax return?

What is Long-Term Care?

“Long-term
care” refers to the ongoing personal assistance you need when you have a
prolonged physical illness, disability or severe cognitive impairment (such as
Alzheimer’s disease). It may involve help carrying out basic self-care tasks,
such as bathing, dressing or eating, which are called “Activities of Daily
Living” (ADLs). And you may need assistance with “Instrumental Activities of
Daily Living” (IADLs), including meal preparation, money management, house
cleaning, medication management, and transportation.

The long-term supportive
care may be provided in various settings including the care recipient’s home, a
personal care facility, or a nursing home.

Long-term care
is expensive. The cost can
quickly wipe out the financial resources of the care recipient.. Being able to
deduct the cost of care to reduce income tax liability can help preserve funds
and extend the taxpayer’s ability to meet future needs.

Are Long-Term
Care Expenses Tax Deductible?

Section 213 of the
Internal Revenue Code allows for the deduction of unreimbursed medical expenses
paid by a taxpayer for himself, spouse, and dependents to the extent that the
expenses exceed 10% of the taxpayer’s adjusted gross income. Medical expenses
are somewhat broadly defined to include costs like dental expenses, medical
equipment and supplies, the premiums you pay for insurance that covers the
expenses of medical care, and the amounts you pay for transportation to get
medical care. Medical expenses are not
deductible if they are reimbursed by insurance.

You can
generally deduct medical expenses either when the services were provided or
when you paid for them. If the care recipient has died IRC 203(c) allows medical
expenses which are paid out of the taxpayer’s estate within a year of death to
be treated as paid by the taxpayer at the time incurred.

Medical
expenses generally include the unreimbursed cost of care in a hospital or
skilled nursing facility if a principal reason for being there is to get
medical care. This includes the cost of meals and lodging.

But what about
expenses incurred for long-term care provided by non-medical personnel at the
recipient’s home or in a personal care home or assisted living facility? Can
these expenses be deducted? The answer may be yes, depending on the situation
and the taxpayer’s compliance with certain requirements of the Internal Revenue
Code.

(B) are provided pursuant to a plan of care prescribed by a
licensed health care practitioner.

(2)Chronically ill individual

(A)In general The term “chronically ill individual” means any individual
who has been certified by a licensed health care practitioner as—

(i) being unable to perform (without substantial assistance from
another individual) at least 2 activities of daily living for a period of at
least 90 days due to a loss of functional capacity,

(ii) having a level of disability similar (as determined under
regulations prescribed by the Secretary in consultation with the Secretary of
Health and Human Services) to the level of disability described in clause (i),
or

(iii) requiring substantial supervision to protect such individual
from threats to health and safety due to severe cognitive impairment.

Such term shall not include any individual otherwise meeting
the requirements of the preceding sentence unless within the preceding 12-month
period a licensed health care practitioner has certified that such individual
meets such requirements.

(B)Activities
of daily living For purposes of
subparagraph (A), each of the following is an activity of daily living: (i) Eating.(ii) Toileting.(iii) Transferring. (iv)
Bathing.(v) Dressing.(vi)
Continence.

...

(3)Maintenance or
personal care services

The term “maintenance or personal care services” means any
care the primary purpose of which is the provision of needed assistance with
any of the disabilities as a result of which the individual is a chronically
ill individual (including the protection from threats to health and safety due
to severe cognitive impairment).

(4)Licensed health care practitioner

The term “licensed health care practitioner” means any
physician (as defined in section 1861(r)(1) of the Social Security Act) and any
registered professional nurse, licensed social worker, or other individual who
meets such requirements as may be prescribed by the Secretary.

Jeff’s Analysis

Can you deduct
long-term care expenses? Frequently, the answer is yes. It’s not easy, but it
may be well worth the effort.

Expenses paid
to non-medical personnel for care provided at home or in a personal care home
or assisted living facility can be tax deductible if they meet the QLTCS
rules. Internal Revenue Code Section
7702B(c) establishes a number of requirements that must be met in order for an
expense to be a deductible QLTCS.

The services must be necessarydiagnostic,preventive,therapeutic,curing,treating,mitigating,rehabilitativeservices,andmaintenanceandpersonalcare services(definedlater), that are

Annual Certification. An individual is not a chronically
ill individual for tax purposes unless within the preceding 12-month period a
licensed health care practitioner has certified that such individual meets such
requirements.

Licensed Health
Care Practioner.
A physician, registered professional nurse, or licensed social
worker/

The caregiver
providing the QLTCS need not be a licensed healthcare professional. In Estate of
Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian
Baral suffered from severe dementia and her doctor recommended that she get
24-hour-a-day care. Her brother hired personal caregivers to assist her. The
Tax Court agreed that the payments to the caregivers were deductible medical
expenses, even though the caregivers were not medical personnel, because a
doctor had found that the services provided to Ms. Baral were necessary
pursuant to the plan of care he was prescribing.

Deducting the
cost of QLTCS (or any medical expenses) requires good bookkeeping. IRS regulations
provide for substantiation of medical deductions: “In connection with claims for
deductions under section 213, the
taxpayer shall furnish the name and
address of each person to whom payment for medical expenses was made and the amount and date of the payment thereof in each case.” 26 CFR 1.213-1(h). [Emphasis
added]

In addition,
each year you should get a new written certification from a licensed health care
practitioner that the care recipient is a chronically ill individual. I also suggest that you consult
with your tax advisor and elder law attorney to make sure you are complying
with all the deduction requirements. On the taxpayer's 1040 deduct the expenses on Schedule A.

Thursday, May 18, 2017

[Can you be held financially responsible for your parent's unpaid hospital, nursing home, and other care costs? In some states the answer is yes. Here is an article on the subject written by Elizabeth White, Certified
Elder Law Attorney* with Marshall, Parker
and Weber. It is based on the current law in Pennsylvania.]

As an
elder law attorney, I am often asked this excellent question: “If I cannot pay
for my nursing home care, is my child required to pay my unpaid bills?”

In Pennsylvania, the answer to that question is “Yes”.
However, there is a “But” that I will explain after I elaborate on the “Yes”.

The “Yes” part of my answer comes from a law in
Pennsylvania called a Filial Support Law. The law states that a child is
responsible for the care or the cost of care for their indigent parent.

The filial support law can be used by a parent to sue a child
for care and support. It can also be used by facilities, such as nursing homes,
to sue children to collect unpaid bills for their parent’s care. This happens
frequently.

There are a few exceptions built into the law. One is for a
child who was abandoned by their parent for at least 10 years of their
minority. The second is for the child who does not have sufficient financial
ability to support the indigent parent. However, the threshold for being deemed
to have the financial ability to support a parent has been set very low. Courts
have held children financially responsible to pay for their parent’s care even
though the children have their own families to support as well.

When is your parent considered to be “Indigent?” There is no
definition of indigent in the law, but courts have determined that a person is
indigent if they have insufficient means to provide themselves with the care
and support that they need.

The law imposes the filial responsibility on children even
when there is no claim of financial wrongdoing by a child. Further, when there
is a situation of a transfer of a parent’s assets to a child or another party,
the law can be applied to any of the children, not just the child who benefited
from the transfer.

In a family with more than one child, just being the “good”
child does not shield you from liability. For example, assume that there are
two children in the family and one child transfers his mother’s home or funds
to himself (“bad” child). This kind of transfer can create a lengthy period
during which Mom will be ineligible for certain government nursing home
benefits. Unpaid bills can result. Under the support law the other child
(“good” child) can be held solely responsible for the payment of the care costs
for the indigent mother, even if the “good” child was unaware of and/or did not
benefit from the transferred funds.

Finally, an explanation of the “But” part of
the answer. The “But” is that proper planning can prevent a child from becoming
personally responsible for the cost of their parent’s care. If correct planning
is completed, there are programs, such as Medical Assistance and Veterans
benefits, for which a parent may be able to qualify. These benefit programs can
help pay for nursing home and other care costs. With this kind of expert
planning in place the parent’s care costs get paid and children don’t end up
getting sued.

* Elizabeth White has been Certified as an Elder Law Attorney
by the National Elder Law Foundation

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About Me

I am a Pennsylvania lawyer with over 35 years experience in estate planning and elder law. I was selected by US News Best Lawyers® as its Lawyer of the Year in Elder Law for 2014 for the Harrisburg, Pennsylvania metropolitan region.
I am of counsel to Marshall, Parker and Weber, a law firm which has offices in Williamsport, Jersey Shore, Wilkes-Barre and Scranton, Pennsylvania. I am past President and a founder of PAELA (the Pennsylvania Association of Elder Law Attorneys). However, the views expressed on this site are my own and not those of PAELA or of Marshall, Parker and Weber.
Most importantly I am a husband, father and grandfather.